Does My Employer’s Location Affect My US Tax Return?

Yes, your employer’s location can affect certain aspects of your US tax return—but not all. Here’s how it breaks down:

1. Foreign Earned Income Exclusion (FEIE)

Your employer’s location does not affect your eligibility for the Foreign Earned Income Exclusion, as long as:

• You live and work abroad, and
• Your tax home is in a foreign country, and
• You meet either the Physical Presence Test or the Bona Fide Residence Test

What matters most is where the work is physically performed, not where your employer is based or where the payment is processed.

Learn more about FEIE

2. Foreign Tax Credit (Form 1116)

Your employer’s location also doesn’t affect your ability to claim the Foreign Tax Credit, which allows you to offset US tax with income taxes paid to a foreign government, provided those taxes meet IRS requirements.

However, to benefit, the foreign tax rate on the same income must generally be equal to or higher than the US tax rate.

More on the Foreign Tax Credit

3. W-2 Adjustments (If Employed by a US Company)

If your employer is a US-based entity, they may issue you a W-2 with incorrect withholding (i.e., withholding US income tax even if you qualify for FEIE). Your Greenback accountant can help you:

• Review and adjust your W-2, if needed
• Apply for exemption from future withholdings using Form 673
• Ensure your return correctly reflects any excluded income

4. Social Security Tax Implications

This is where your employer’s location does matter:

• If you work for a US employer abroad, you are typically still subject to US Social Security and Medicare taxes, even while living overseas.
• If you work for a foreign employer, these taxes generally do not apply, unless a totalization agreement is in place between the US and your host country.

Your accountant will evaluate this based on your employment arrangement and country of residence.

See guidance on totalization agreements

Your Greenback accountant will take all of this into account when preparing your return to ensure you receive every benefit you’re entitled to.

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